Improve your Internal Controls to Lower Audit Fees

If you're a typical finance department, discussions about Internal Controls are probably not part of your daily work day. In our experience, accounting teams start thinking and discussing Internal Control when they have:

found an alarming incidence of error in their business processes

are subjected to a performance audit (if they are a local government)

heard of another organization falling victim to fraud

Outside of these scenarios, the strength of internal controls systems doesn't often get a lot of finance's attention while they take care of payroll, budgeting, management reporting, financial reporting and so much more.

There is a large, but often overlooked reason to focus on your internal controls system, an opportunity to reduceaudit fees.

• Increasing the number of locations to be included in the audit scope.

The evidence of this direct relationship between audit fees and internal controls abounds. In December 2016, the Financial Executives Research Foundation (FERF) survey of more than 6,000 organizations found that reviews of internal controls continue to be one of the three major driving factors behind rising audit fees:

More than 20% of the respondents that had audit fee increases cited a “review of manual controls from [Public Company Accounting Oversight Board] inspections.”

Companies that cited ineffective internal controls as adding to audit fees experienced a 5.1% median increase, almost two percentage points higher than the median increase for all other filers.

Align key controls with key risks: Ensuring the organization has strong controls to address the most significant risks will give management and auditors increased confidence.

Document internal controls: If an organization has very light or poorly organized documentation, or hasn’t thought through all the branches in a process, attestation becomes difficult for the auditor — and more costly for you.